Tan Kin Lian's Blog: Financial Services Authority fines Lloyds Bank in 2002

Thursday, October 30, 2008

Financial Services Authority fines Lloyds Bank in 2002

From Business Times

Lloyds TSB was fined GBP 1 million (S$2.35 million) in 2002 by the Financial Services Authority (FSA) of the UK and had to set aside GBP 165 million to compensate claims relating to mis-sold endowment policies, involving 45,000 policyholders.

In 2003, Lloyds TSB was further fined GBP 1.9 million and had to compensate GBP 98 million to 22,500 investors, many of them pensioners. This was related to the mis-selling of high-income 'precipice' bonds touted as an 'Extra Income and Growth Plan'. These bonds promised a return of 9.75-10.25 per cent over three years (twice the bank deposit rates then) and were linked to 30 stocks. They were called 'precipice' bonds because the investors' capital returns could 'fall off a cliff' if the markets fell below a pre-set trigger point.

The markets linked to the 30 stocks did indeed fall. These high-risk bonds, which were highly leveraged, were sold to inexperienced investors. Some 16,500 investors had never purchased equity-related investment products before.

22,500 sales out of 51,000 (that is, 44 per cent) of the total sold were deemed to have been mis-sold. Howard Davies, outgoing chairman of FSA, said that the products sold by Lloyds were 'inherently wicked' (because they were highly leveraged) and they were sold to unsuitable people.

Andrew Proctor, FSA director of enforcement, said: 'There was nothing wrong with the product itself. The problem was that too much of it was sold to the wrong people.'

4 comments:

Anonymous said...: Just like to also highlight further unethical practice of DBS. I was invited to be a Treasures Member recently.
For a long period of time, I actually qualified to be a Treasures member but was not invited despite meeting the criteria of having at least $200K with the bank. Recently due to fear of the financial crisis affecting banks (before the Govt guarantee), I transferred some of my money to other banks to diversify my risks, resulting in my bank balance falling below $200K.
It is really "coincident" that I finally receive an invitation to be a DBS Treasures member at this time. I initially wanted to ignore the invitation but was shocked to see a small slip of paper below which states that I need to opt out by a certain date if I do not wish to be a member. Presumably I would otherwise become a member which come with a hefty fee of $50 per month as my bank balance was below $200k. Obviously from my past banking profile with the bank, I am a "FD" person and is very risk averse. I do not need the service of a so called relationship manager to advise me on investment at that price though actually I could have tapped on the advantage of having slightly higher interest rate on MySavings accounts. I have go through the unnecessary task of calling up the so called assigned Relationship manager and fax in the form to confirm that I do not wish to be a member.
This is an example of unscrupulous practice by the bank which should be stopped. This is similar to unsolicited credit cards being sent to some people, exposing them to risks and card charges.
One of my former colleague also had a similar experience and had some charges deducted from her account without her knowledge. She later noticed the monthly deductions and was told it was for a fee to have a relationship manager assigned to her without her consent. She was furious and called the bank to have the charges which has been deducted over a few months reversed. She only got the amount back after much followup and threatening to go further up to higher level management.; October 30, 2008 6:33 PM
Anonymous said...: rice is rice.

theres just different ways of putting it in YOUR bowl.

thats all.

nothing surprising or wicked, plain survivalism.

its been said, if you arent competent to watch over your wallet, then you deserve to lose it to the next best competent party who could; October 30, 2008 8:27 PM
Anonymous said...: Hong Kong watchdog sue banks over Lehman mini-bond sales.
Our watchdog is just a blind poodle.

http://sg.news.yahoo.com/afp/20081031/tts-finance-banking-hongkong-lehman-444f7d7.html; October 31, 2008 4:20 PM
Anonymous said...: FAA is like FSA. FSA was formed with one sole purpose of regulating the financial industry of which the banks and the insurance companies are among its members.
Its functions are to see the players are playing by the same rules and anyone breaking it must pay heavily. It also protects the consumers who are the players on the other side and they make the largest component of the markets which are created to serve their interests solely. It also ensures that the consumers are fairly teeated and the FIs are rewarded fairly to bring about a win-win outcome.
Our FAA was created to perform the same purpose. Alas, MAS , the enforcer of the FAA fails in its duty in all these areas.; November 01, 2008 6:32 PM